Health plans provide coverage to enrolled eligible participants in consideration of premiums paid that are utilized to fund costs incurred by the plan. A “health plan” or “plan” as used herein generally refers to a contract of insurance or similar agreement detailing covered services, plan design, requirements for accessing benefits and/or the like. A “participant” generally refers to a person covered under a specific plan of group or individual insurance or similarly subject to a similar agreement. A “premium” generally refers to an amount paid in consideration for an insurer or health plan providing health care insurance coverage or the like.
In the case of many plans sponsored by a payor, such as but not limited to employer sponsored or governmental plans, the cost of coverage with regard to premiums paid is split in a predetermined and mutually agreed upon fashion between the participant and a payor. A “payor” generally refers to the entity that is contractually responsible or otherwise responsible for providing health care coverage to a participant. This split typically takes place in the form of co-premium or co-insurance charges. A “co-premium” is the amount of premium paid by a participant (e.g., an employee) when procuring health care coverage through an employer sponsored or administered plan, with the balance of premiums being paid by the employer or other third party, whether referred to as “co-premium” in a plan or by another term. “Co-insurance” refers to the percentage of charges that a participant is required to pay other than deductibles or co-payments, whether referred to as “co-insurance” in a plan or by some other term.
Cost of claims is split in a predetermined and mutually agreed upon fashion between the participant and the plan. A “deductible” refers to an amount of first dollar charges that must be paid by a participant before the plan incurs liability for costs incurred in relation to the provision of a covered service, whether referred to as a “deductible” in a plan or by some other term. A “covered” product or service refers to a health care service, drug, or durable medical equipment or other product or service that is eligible for reimbursement under an insurance plan. A “co-payment” refers to the first dollar amounts required to be paid by a participant when procuring a good or service, such as but not limited to a physician office visit, obtaining a covered prescription drug, etc., whether referred to as “co-payment” in a plan or by some other term.
Cost sharing methodologies typically have included either a fixed dollar amount co-insurance deductible or co-payment, or a fixed percentage of total cost of a product or service. A “fixed co-payment” generally refers to a specific designated dollar amount required of a participant when procuring a covered product or service, and a “percentage co-payment” generally refers to a specific first dollar percentage of the cost of product or service required to be paid by the participant.
Co-premiums (the cost sharing of the actual cost of procuring insurance coverage) are either debited from employee paychecks or billed and collected from the participant at regular intervals. Cost sharing with regard to premiums is typically agreed upon in advance of or at the beginning of a benefit year utilizing a variety of methodologies depending upon the type of plan (e.g., contract of coverage, collective bargaining agreement (CBA), etc.). Employer plans may have an agreed upon structure embedded within a CBA, or through the application and consent process required to become a participant in the plan (employer sponsored plans), enrollment in certain governmental plans, or as part of the enrollment process for obtaining private insurance.
The total premium cost is determined in a variety of ways depending upon the type of plan. In the case of employer sponsored plans, the cost of coverage is usually actuarially determined for the entire insured population, and based upon CBAs or other requirements predicate to enrolling in a given plan, the costs of premiums are divided between the participant and the employer. In the case of private insurance not obtained through an employer or governmental program, costs of coverage are dependent upon underwriting processes that look at risk in the form of demographic factors and where permissible incorporate “risk” algorithms prior to enrollment. Premiums are usually set or guaranteed for a specific period of time such as a plan year, and premiums are collected on a set schedule. There is not a mechanism in place to modify co-premiums and co-insurance on a more frequent basis.
Plans can provide coverage to enrolled eligible participants for health care items such as pharmaceuticals. “Pharmaceuticals,” “medications,” or “drugs” are used interchangeably herein. For instance, medications typically taken outside of a hospital or outpatient facility conventionally are covered under a health plan's pharmaceutical benefit with medications that are given in an outpatient center physician's office, or hospital typically covered under a Major Medical benefit packet of the plan. Without regard to which benefit pocket applies, most plans or insurance companies maintain a list of covered medications known as a formulary.
Participants usually are required to pay for a portion of a medication's cost (a first dollar contribution), and accordingly the formulary in addition to designating which drugs are covered also indicates what portion of the total cost will be paid for by the participant via a fixed co-payment or co-insurance, with the balance of total cost paid by the plan. Cost sharing methodologies typically have been either a fixed dollar amount co-payment (fixed co-payment), or a fixed percentage of total cost co-payment (percentage co-payment), which is usually updated on an infrequent basis and collected from the member at time of procurement at a point of purchase, such as but not limited to a retail, mail order, or specialty pharmacy.
Typical co-payment structures include several categories or tiers of co-payments within the formulary, with each covered medication included in the formulary being assigned to a specific co-payment tier or level requiring the same fixed dollar amount or percentage of the absolute cost to be paid by the participant. Tier placements, which determine how much a participant is required to pay of the total cost, are usually based on the total cost of the drug and/or the perceived therapeutic benefit of a particular medication, and serve to determine the absolute dollar and relative percentage of total costs paid by the plan and participant.
Plans contract with companies (e.g., pharmacy benefit managers or PBMs), who in turn contract on behalf of the plan with retail, mail order, and specialty pharmacies to obtain preferred total pricing for medications and administer the plan design. Pharmaceutical manufacturers sell their medications either directly or through a variety of distributors to retail, specialty, and mail order pharmacies. The pharmaceutical manufacturers through distributors then provide the medications to pharmacies or specialty pharmacies for sale to who in turn provide the medications to participants and collect the co-payments or co-insurance, as well as balance bill the balance due from the health plan to the PBM. The PBM in turn collects the balance from the plan and remits the balance to the pharmacy.
While medications are in most cases not sold directly by the manufacturer to the end user (participant), most pharmaceutical manufacturers market their products directly to participants (e.g., via television, print, online, etc.), and utilize a variety of techniques to induce participants to seek out specific brand name drugs through their physicians and healthcare providers, typically without regard to cost and comparative effectiveness. Example marketing techniques include free sampling and coupons targeted at reducing the participant's co-payment while leaving the health plan's cost unchanged. A “coupon” as used herein generally refers to a promotional device, such as provided by a manufacturer or provider, designed to provide and deliver incentives to purchase a drug or other medically related health item to the end user (i.e. plan participant).
By artificially reducing the participant's portion of the total cost of the drug through the use of coupons, the pharmaceutical manufacturers many times eliminate cost differentials between their drug and alternate generic or brand choices, which alternate choices may be equally or more effective for the participant's condition and significantly less expensive in terms of total cost and cost borne by the health plan.